{"id":1893,"date":"2022-01-28T09:41:17","date_gmt":"2022-01-28T09:41:17","guid":{"rendered":"https:\/\/www.carmoecerqueira.pt\/?p=1893"},"modified":"2022-02-10T11:23:03","modified_gmt":"2022-02-10T11:23:03","slug":"inflation-hits-new-record-high-is-this-a-temporary-rise","status":"publish","type":"post","link":"https:\/\/www.carmoecerqueira.pt\/en\/inflation-hits-new-record-high-is-this-a-temporary-rise\/","title":{"rendered":"Inflation hits new record high: is this a temporary rise?"},"content":{"rendered":"<div align=\"justify\">\n<p style=\"text-align: justify;\">After years of very low inflation, in the last quarter of 2021, inflation reached its highest level in the last 20 years.<\/p>\n<p style=\"text-align: justify;\">Assuming that by inflation we mean a continuous and generalized increase in prices and although capable of seriously disrupting a country&#8217;s economy, inflation should not be confused with hyperinflation. The latter term also consists of a generalized increase in prices but in much larger proportions, while inflation is a symptom of healthy growing economies, as opposed to hyperinflation which is synonymous with recessions and crises of economic stability.<\/p>\n<p style=\"text-align: justify;\">There are three main reasons behind the high levels of the inflation rate at the end of 2021: the rapid re-opening of the economy, higher energy prices, and what statisticians call the &#8220;base effect&#8221;:<\/p>\n<ul>\n<li><strong>Rapid Re-opening of the Economy<\/strong><\/li>\n<\/ul>\n<p>With the release of more of the restrictions associated with the pandemic COVID-19, the economy reopened, causing people to start buying more and spending more money, plans that had been on standby in the lockdown period. Thus, with a growing economy, it becomes easier for companies to raise prices without this effect spilling over into demand.<\/p>\n<ul>\n<li style=\"text-align: justify;\"><strong>Higher energy prices<\/strong><\/li>\n<\/ul>\n<p style=\"text-align: justify;\">Energy products, oil, gas and electricity became more expensive worldwide and the main factor contributing to this sharp increase in prices was the change in weather conditions: less wind in the United Kingdom left wind turbines idle, droughts in Brazil reduced electricity production in dams and the colder winter left smaller amounts of oil and gas reserves. Because the costs of businesses and people are related to energy products, their increasing demand has pushed up prices rapidly. Even half of the recent rise in inflation was due to higher prices for these products. (ECB, 16 November 2021).<\/p>\n<ul>\n<li style=\"text-align: justify;\"><strong>&#8220;Base effect&#8221;<\/strong><\/li>\n<\/ul>\n<p style=\"text-align: justify;\">To measure inflation, one compares price developments by year-on-year periods. The truth is that at the peak of the pandemic, in March 2020, prices were exceptionally low and one of the reasons found, according to the ECB, is essentially due to a reduction in sales tax in Germany. Thus, comparing the current higher prices with the lower levels in the past period, the differences appear to be substantial and are the so-called &#8220;base effects&#8221; that tend to disappear.<\/p>\n<p style=\"text-align: justify;\">According to the estimate released by Eurostat &#8211; the European Union&#8217;s statistical office &#8211; the year-on-year inflation rate in the eurozone reached 5% in December 2021, a percentage that was well above the figures anticipated by economists. According to Bloomberg, a result of 4.8% was expected in December, slightly below the 4.9% registered in the previous month.<\/p>\n<p style=\"text-align: justify;\">According to the EU&#8217;s Bureau of Statistics, the biggest contribution to the generalized rise in prices in European countries was made by energy, followed by food, alcohol and tobacco. Energy had the biggest increase in the annual rate previously reported, at around 26%. The food, alcohol and tobacco group rose 3.2%, compared to 2.2% in November.<\/p>\n<p style=\"text-align: justify;\">With an estimate of 5% in December, this was a new record high, which adds to doubts as to whether this rise in inflation is really temporary &#8211; as so far stated by ECB leaders.<\/p>\n<p style=\"text-align: justify;\">However, already at the end of the year, the statements quoted by the vice-president showed a different line of thought from the one that was disclosed until then, where he had already recognized that inflation was &#8220;more persistent (&#8230;) not as temporary as we anticipated&#8221;.<\/p>\n<p style=\"text-align: justify;\">These words were backed up by Jerome Powell, chairman of the US Federal Reserve, after he argued that &#8220;it is time to remove the term transitory from inflation&#8221;. However, this negativist view was not supported by everyone. Christine Lagarde, president of the ECB, remained confident about the turning of the curve, firmly believing that inflation will pull back by this year 2022. According to Lagarde, it is unwise to say that inflation will meet the 2% target, even warning that it is likely to remain high in the short term before stabilizing in the long term. However, she said the consumer price index should show signs of receding.<\/p>\n<p style=\"text-align: justify;\"><strong>So, the question arises, are these sudden rises in the inflation rate permanent or do they have an end in sight?<\/strong><\/p>\n<p style=\"text-align: justify;\">What is certain is that the movements are expected to be downward rather than upward in the course of 2022. Supply will gradually rise in response to rising demand, markets are hopeful that energy prices will fall and base effects will no longer be included in year-on-year comparisons.<\/p>\n<p style=\"text-align: justify;\">Nevertheless, given that the pandemic is unprecedented in modern times, the recovery is challenging, especially given its uncertainty, which makes inflation projections difficult.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"After years of very low inflation, in the last quarter of 2021, inflation reached its highest level in the last 20 years. Assuming that by inflation we mean a continuous and generalized increase in prices and although capable of seriously disrupting a country&#8217;s economy, inflation should not be confused with hyperinflation. The latter term also&#8230; <a class=\"view-article\" href=\"https:\/\/www.carmoecerqueira.pt\/en\/inflation-hits-new-record-high-is-this-a-temporary-rise\/\">View Article<\/a>","protected":false},"author":7,"featured_media":1932,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[50],"tags":[],"class_list":["post-1893","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-c-omentario-en"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.carmoecerqueira.pt\/en\/inflation-hits-new-record-high-is-this-a-temporary-rise\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Inflation hits new record high: is this a temporary rise? | Carmo &amp; Cerqueira\" \/>\n<meta property=\"og:description\" content=\"After years of very low inflation, in the last quarter of 2021, inflation reached its highest level in the last 20 years. 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